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Most Chinese firms' overseas acquisitions fail due to cultural gaps, law firm says
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Most overseas mergers and acquisitions by Chinese companies have ended in failure mainly due to cultural gaps and inadequate post-acquisition integration, industry observers said today.
Around 70 percent of overseas mergers and acquisitions flopped and 70 percent of the unsuccessful cases can be attributed to cultural conflicts, according to MWE China Law Offices, strategic alliance partner of McDermott Will & Emery, one of the world's largest grossing law firms.
"It is important to be open-minded about the challenges of cultural gaps to win a counterpart's sense of community identity and sense of belonging," said Winston Zhao, senior counsel with MWE China Law Offices.
A successful investment also requires a clear strategy, risk-control measures and a post-acquisition integration plan that will cover every aspect of the business operation, Zhao said.
Merger and acquisition activity is a rising force in Chinese outbound investment as it provides a shortcut for companies to upgrade operations, boost competitiveness and get into new markets.
Overseas Chinese companies are expanding their footprints from natural resources and energy industries to consumer sectors including agriculture, food, automobiles, entertainment and real-estate, industry watchers said.
Shanghai's outbound investment hit US$13.6 billion in 2012, up from US$500 million in 2001, with 75 percent completed in the past four years, according to Yang Xi, secretary general of Shanghai Federation of Industry and Commerce.
"International expansion is an inevitable trend for local enterprises as the Chinese economy is increasingly converging with global markets," Yang said. "It's crucial for companies to look into areas that coincide with China's growth direction."
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